Tags: BHE / earnings
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Introduction
Berkshire Hathaway Energy (BHE) is a global energy company with a diverse portfolio of businesses spanning utilities, natural gas pipelines, renewable energy projects, and real estate brokerage. In 2022, BHE experienced significant growth in its financial performance, with total revenue reaching $26.393 billion, up from $25.096 billion in 2021. This article will delve into BHE's 2022 financial results, providing a comprehensive analysis of the factors that contributed to the company's growth and examining its future outlook.
We will explore BHE's financial performance by segment, key drivers of growth, challenges faced in 2022, and the company's growth prospects in the years ahead.
The analysis is based on Berkshire Hathaway's 2022 Annual Report. Berkshire Hathaway currently owns 92% of BHE's outstanding stock.
Financial Performance in 2022
BHE's total revenue increased consistently from $19.987 billion in 2018 to $26.393 billion in 2022. The company's net earnings attributable to BHE also grew, from $2.901 billion in 2018 to $4.352 billion in 2022. A segment-wise breakdown of BHE's after-tax earnings for 2022, compared to 2021 and 2020, reveals the following:
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| U.S. utilities | $2,295 | $2,211 | $1,969 |
| Natural gas pipelines | $1,040 | $807 | $528 |
| Other energy businesses | $1,338 | $979 | $953 |
| Real estate brokerage | $100 | $387 | $375 |
| Corporate interest and other | ($421) | ($337) | ($352) |
| Total | $4,352 | $4,047 | $3,473 |
Note that these earnings are attributable to BHE. Since Berkshire Hathaway owns 92% of BHE, these earnings are not completely attributable to Berkshire Hathaway.
Several factors contributed to the growth in each segment, which we will discuss below.
Key Drivers of BHE's 2022 Financial Performance
- Investments in Renewable Energy Projects: BHE's increased earnings in the other energy businesses segment can be attributed to higher operating revenue from owned renewable energy projects and earnings from new gas exploration and solar projects. The company also experienced increased wind tax equity investment earnings, reflecting the impact of losses in 2021 due to the February winter storms and increased income tax benefits from projects reaching commercial operation over the past twelve months.
- Expansion of Natural Gas Pipelines: BHE's natural gas pipelines segment saw a significant increase in after-tax earnings in 2022 compared to 2021. This growth was primarily driven by BHE GT&S, which benefited from higher regulated storage and service revenues from a general rate case settlement and higher revenues and margins from non-regulated activities, as well as income tax adjustments.
- Regulatory Changes and Rate Case Settlements: The U.S. utilities segment experienced growth in after-tax earnings due to higher electric utility margin and a $157 million increase in production tax credits recognized on new wind-powered generating facilities placed in service at PacifiCorp and MEC. The growth was partially offset by higher operating expenses and state income taxes.
- Impact of Weather Events on Operations: Favorable weather conditions in 2022 contributed to an increase in retail customer volumes, driving higher operating revenue and leading to growth in the U.S. utilities segment.
Challenges Faced by BHE in 2022
- Reduced Earnings in the Real Estate Brokerage Segment: BHE's real estate brokerage segment experienced a decrease in after-tax earnings in 2022 compared to 2021. This decline resulted from lower brokerage services revenues and margins due to an 11% reduction in closed brokerage transaction volumes, as well as lower mortgage services revenues and margins from a 40% decrease in closed transaction volumes, attributable to lower homeowner refinancing activity resulting from rising interest rates.
- Higher Operating Expenses: The U.S. utilities segment faced higher operating expenses due to increased costs associated with certain regulatory mechanisms at MEC and NV Energy, general and plant maintenance cost increases, incremental depreciation expense from additional assets placed in service, and higher accruals at PacifiCorp associated with the 2020 wildfires. These factors partially offset the earnings increase in this segment.
- Foreign Currency Translation Effects: The other energy businesses segment also faced challenges in the form of unfavorable foreign currency translation effects in 2022, which impacted earnings. V. BHE's Future Outlook
- Continued Investment in Renewable Energy: BHE is expected to continue investing in renewable energy projects, including wind and solar, as well as expanding its natural gas pipeline network. These investments will likely contribute to future earnings growth in the other energy businesses and natural gas pipelines segments.
- Regulatory Environment: BHE's growth prospects will be influenced by the regulatory environment in the U.S. and abroad. Changes in tax policies, energy regulations, and rate case settlements could impact the company's earnings across its business segments.
- Technological Advancements: As technology continues to evolve, BHE may capitalize on advancements in energy storage, grid modernization, and clean energy innovations to maintain its competitive edge and drive growth.
- Real Estate Market Dynamics: The performance of BHE's real estate brokerage segment will be influenced by factors such as interest rates, housing market trends, and economic conditions. The company will need to adapt to market changes to maintain profitability in this segment.
Conclusion
Berkshire Hathaway Energy's 2022 financial results highlight the company's continued growth across its diverse business segments, driven primarily by investments in renewable energy projects, natural gas pipelines expansion, and favorable regulatory changes.
However, BHE also faced challenges in the real estate brokerage segment, higher operating expenses, and unfavorable foreign currency translation effects.
Going forward, BHE's outlook will be influenced by its ability to continue investing in renewable energy projects, adapt to the evolving regulatory environment, capitalize on technological advancements, and navigate the dynamics of the real estate market.
By successfully managing these factors, BHE has the potential to further solidify its position as a leading global energy company and contribute positively to Berkshire Hathaway's overall performance.
